Executive Summary

Q4 revenue of $158.5M grew 3% YoY but came in below company guidance ($162–$167M), driven by a higher-than-expected SaaS mix which defers revenue recognition . Non-GAAP diluted EPS was $0.18, above the $0.13–$0.14 guide on operating leverage and SaaS efficiency .
ARR reached $641.9M (+18% YoY) with SaaS now ~53% of total ARR; new-customer ARR grew ~50% as GenAI/Copilot and MDDR drove demand .
Management pulled forward completion of the SaaS transition to year-end 2025 (one year earlier than prior view), noting conversions temporarily dilute revenue growth and sales efficiency but should improve NRR and upsell capacity post-transition .
Initial FY25 outlook: ARR $737–$745M (+15–16%), revenue $610–$625M (+11–13%), FCF $120–$125M, and non-GAAP EPS $0.13–$0.17; Q1’25 revenue guide $130–$135M (+14–18% YoY) with a small non-GAAP loss as mix headwinds persist .
Post-quarter, the Board authorized a $100M share repurchase over 12 months; together with >$1.2B cash/securities at 12/31, this supports capital returns while investing behind growth .

What Went Well and What Went Wrong

What Went Well

New logo momentum accelerated; ARR from new customers up ~50% YoY in Q4, aided by simplicity of SaaS, MDDR, and GenAI-driven awareness for data security .
Delivered strong cash generation: FY24 free cash flow $108.5M (vs. $54.3M LY), supported by $115.2M operating cash flow and robust renewals (>90%) .
Strategic expansion of coverage: launched integrations for Google Cloud, Databricks, and ServiceNow, broadening TAM and cross-sell surface area .

What Went Wrong

Revenue missed company Q4 guidance ($158.5M vs. $162–$167M) as SaaS bookings mix exceeded plan (53% of ARR vs. ~49% expected), pulling forward ratable recognition and pressuring reported revenue .
Non-GAAP operating margin compressed YoY (9.7% vs. 17.7% LY) due to SaaS mix headwind and elevated conversion activity that dilutes sales efficiency during transition .
GAAP operating loss widened ($17.6M vs. $5.2M LY) on higher operating expenses and cost of revenues as the business model shifts, despite non-GAAP profitability remaining positive .

Financial Results

Headline Results Trend (Q2–Q4 2024)

Metric	Q2 2024	Q3 2024	Q4 2024
Revenue ($M)	$130.3	$148.1	$158.5
GAAP EPS ($)	$(0.21)	$(0.16)	$(0.12)
Non-GAAP Diluted EPS ($)	$0.05	$0.10	$0.18
Non-GAAP Operating Income ($M)	$2.1	$9.1	$15.3

Segment Revenue Mix (Q2–Q4 2024)

Segment ($M)	Q2 2024	Q3 2024	Q4 2024
SaaS	$44.8	$57.8	$72.2
Term License Subscriptions	$62.7	$68.8	$66.8
Maintenance & Services	$22.8	$21.5	$19.5

Q4 Year-over-Year Margin Comparison

Margin Metric	Q4 2023	Q4 2024
Non-GAAP Gross Margin %	88.5%	84.4%
Non-GAAP Operating Margin %	17.7%	9.7%

KPIs

KPI	Q2 2024	Q3 2024	Q4 2024
ARR at Period-End ($M)	$584.2	$610.0	$641.9
SaaS ARR as % of Total	~36%	~43%	~53%
Subscription Customers	—	—	5,600
Dollar-Based NRR (Sub Customers)	—	—	105% (FX adj.)
FY Free Cash Flow ($M)	—	—	$108.5

Q4 Actual vs Company Guidance (issued Oct 29, 2024)

Metric	Guidance (Q4 2024)	Actual (Q4 2024)	Result
Revenue ($M)	$162–$167	$158.5	Miss (below range)
Non-GAAP Operating Income ($M)	$20–$22	$15.3	Miss (below range)
Non-GAAP Diluted EPS ($)	$0.13–$0.14	$0.18	Beat (above range)

Management attributed revenue shortfall to a higher SaaS booking mix that shifts revenue recognition from upfront to ratable; they noted ~7% revenue headwind vs guide from SaaS mix delta and emphasized FCF unaffected by mix .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q1 2025	—	$130–$135	New
Non-GAAP Operating Income (Loss) ($M)	Q1 2025	—	($14)–($11)	New
Non-GAAP Net Loss per Share ($)	Q1 2025	—	$(0.06)–$(0.04)	New
ARR ($M)	FY 2025	—	$737–$745	New
Revenue ($M)	FY 2025	—	$610–$625	New
Free Cash Flow ($M)	FY 2025	—	$120–$125	New
Non-GAAP Operating Income ($M)	FY 2025	—	$0.5–$10.5	New
Non-GAAP Diluted EPS ($)	FY 2025	—	$0.13–$0.17	New

Note: Company also expects to complete the SaaS transition by year-end 2025 (accelerated by one year vs prior commentary) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3 2024)	Current Period (Q4 2024)	Trend
SaaS Transition Pace	Q2: SaaS ARR ~36%; raised FY outlook; strong SaaS momentum . Q3: SaaS ARR ~43%; reiterated demand and raised FY guidance .	SaaS reaches ~53% of ARR; transition accelerated to complete by YE25; conversions a temporary headwind to revenue/efficiency	Accelerating
AI/Copilot & MDDR	Q3: Announced AI-powered discovery; packaging encourages platform sales .	AI/Copilot and MDDR drove ~50% new-customer ARR growth; “meaningful” AI contribution for first time in Q4	Strengthening
Sales Efficiency / NRR	Q3: Focus on ARR growth and cash flow; no explicit NRR detail .	NRR 105% (FX adj.), with upsells deferred until post-conversion; expect NRR to improve post-transition	Near-term pressured, improving post-transition
Product Coverage Expansion	Google Cloud, Databricks, ServiceNow releases in Q4 timeframe .	Continued emphasis on broader coverage driving TAM expansion and cross-sell	Broadening
Microsoft/Ecosystem	Prior mentions of Microsoft 365 focus .	Microsoft Purview seen as complementary; partnership synergies; 100%+ growth in users protected on M365 offerings in 2024 vs 2023	Cooperative; demand tailwind
Mix Headwinds to Rev/Margins	Q3: Guided with increasing SaaS headwind .	~7% Q4 revenue headwind vs guide; YoY gross margin 84.4% vs 88.5% and op margin 9.7% vs 17.7%	Headwind persists through transition

Management Commentary

CEO (prepared remarks): “During 2024, we added over $200 million of SaaS ARR and ended the year with approximately $340 million of SaaS ARR or 53% of total company ARR… We now expect to complete [the transition] by the end of 2025, a year earlier than our previous outlook” .
CFO/COO (prepared remarks): “In the fourth quarter, ARR was $641.9 million, increasing 18% year-over-year… we had approximately an 18% headwind to our year-over-year revenue growth rate as a result of having increased SaaS sales in our booking mix” .
CFO on mix: “When you go back to our guidance for Q4, we talked about a SaaS mix of 49%… we actually got 53%… there’s $11 million of headwind, which is 7% of headwind to our guide” .

Q&A Highlights

Conversions and incentives: Management will start renewal conversations earlier and invest in sales/customer success/legal to streamline documentation; comp plans include specific conversion targets while prioritizing new logos .
Durability of growth: Post-transition, expect better sales productivity, higher NRR, and renewed upsell/cross-sell motion, supporting a return to 20%+ ARR growth over time .
AI/Copilot impact: “Approximately 50%” growth in new-customer ARR in Q4 driven by MDDR and Copilot; 2024 saw “nearly 100% more new users protected” on Microsoft 365 offerings vs 2023 .
Pricing/attach on conversions: SaaS price list ~25–30% higher than on-prem; healthy uplift observed without pricing deterioration; about one-third of customers converted over two years .
Competitive/partner dynamics: Microsoft Purview largely complementary; joint value proposition viewed as additive (1+1=5) in customer deployments .

Estimates Context

Wall Street consensus (S&P Global) for Q4 2024 revenue and EPS could not be retrieved at this time due to data-access limits; therefore, we benchmarked actuals to company guidance instead . Values from S&P Global were unavailable for inclusion.
Implication: Street models will likely adjust for faster SaaS mix, near-term revenue/margin headwinds, but stronger ARR/FCF trajectory embedded in FY25 guidance .

Key Takeaways for Investors

Revenue miss vs guidance was a function of faster SaaS mix shift (ratable recognition), not demand; ARR growth (+18% YoY) and FCF strength ($108.5M) underscore healthy underlying unit economics .
Non-GAAP EPS beat despite revenue shortfall highlights operating leverage and SaaS platform efficiency; mix headwind to margins should abate post-transition .
Accelerated completion of SaaS transition by YE25 should unlock higher NRR and upsell capacity; management explicitly targets a path back to 20%+ ARR growth longer term .
AI/Copilot and MDDR are proven demand catalysts (meaningful in Q4 for first time), with packaging that encourages broader platform adoption at initial sale .
Product expansion (Google Cloud, Databricks, ServiceNow) broadens TAM and strengthens the data-centric security moat as customers standardize on cloud workloads .
FY25 guide embeds double-digit revenue growth and ~$120–$125M FCF while investing to finish the transition; Q1’25 guides to a small non-GAAP loss as revenue recognition timing weighs near term .
$100M buyback authorization post-quarter, with >$1.2B in cash/securities at year-end, offers capital allocation support during transition and potential EPS accretion .

Additional Notes

Balance sheet at 12/31/24: $1.2B in cash/securities; convertible notes (current and long-term) totaling ~$701M, deferred revenue of ~$292M (current + long-term) .
Renewals remained >90%; subscription customers reached 5,600, up 13% YoY .

VARONIS SYSTEMS INC (VRNS)·Q4 2024 Earnings Summary